ENTREPRENEURSHIP

Photo by: Stephen VanHorn

An entrepreneur is one who organizes a new business venture in the hopes
of making a profit. Entrepreneurship is the process of being an
entrepreneur, of gathering and allocating the resources—financial,
creative, managerial, or technological—necessary for a new
venture's success. One engages in entrepreneurship when one begins
to plan an organization that uses diverse resources in an effort to take
advantage of the newly found opportunity. It usually involves hard work,
long hours, and, usually, the hope of significant financial return. More
importantly, entrepreneurship is characterized by creative solutions to
old or overlooked problems; ingenuity and innovation are the
entrepreneur's stock in trade. By taking a new look at difficult
situations, the entrepreneur discerns an opportunity where others might
have seen a dead end.

Entrepreneurship is also a source of more entrepreneurship. Societies
around the world have always been fueled by the innovations and new
products that
entrepreneurs bring to the market. All big businesses started out small,
usually as one man or woman with a good idea and the willingness to work
hard and risk everything. While it is true that many new businesses fail,
the ones that succeed contribute a great deal to the creation of other new
ventures which leads, in turn, to a dynamic national economy. Indeed,
today's economists and business researchers cite entrepreneurship
as a key component of future economic growth in North America and around
the world. "Entrepreneurship is viewed as the catalyst to transfer
a segment of our new generation of [downsized] people into self-employed
business owners who will, in turn, provide jobs for the rest,"
wrote Mitch Lenko in
CMA.
"It is viewed as the necessary component to the creation of new
wealth; and hopefully represents the fountainhead from which will spawn
innovative management techniques for the design, manufacture and marketing
of products that will compete globally."

Successful entrepreneurship depends on many factors. Of primary importance
is a dedicated, talented, creative entrepreneur. The person who has the
ideas, the energy, and the vision to create a new business is the
cornerstone to any start-up. But the individual must have ready access to
a variety of important resources in order to make the new venture more
than just a good idea. He or she needs to develop a plan of action, a road
map that will take the venture from the idea stage to a state of growth
and institutionalization. In most instances, the entrepreneur also needs
to put together a team of talented, experienced individuals to help manage
the new venture's operations. Entrepreneurship also depends on
access to capital, whether it be human, technological, or financial. In
short, entrepreneurship is a process that involves preparation and the
involvement of others in order to exploit an opportunity for profit.

ENTREPRENEURSHIP DEFINED

The multiplicity of the entrepreneur's motivations and goals leads
to questions aimed at distilling the essence of entrepreneurship. To what
or to whom does one refer when one uses the word? Is there any difference
between a person who opens yet another dry cleaning establishment,
sandwich shop, or bookstore and the entrepreneur? If so, what is it that
separates the two? What characteristics define an entrepreneur and
entrepreneurship itself? Historians and business writers have struggled
with providing the answers. Even today, there is no widely accepted
definition, but the variety of possibilities provides important clues as
to what makes entrepreneurship special.

Harvard professor Joseph Schumpeter, for example, argued that the defining
characteristic of entrepreneurial ventures was innovation. By finding a
new "production function" in an existing resource—a
previously unknown means through which a resource could produce
value—the entrepreneur was innovating. The innovation was broadly
understood; an innovation could take place in product design, organization
of the firm, marketing devices, or process design. Nevertheless,
innovation was what separated the entrepreneur from others who undertook
closely related endeavors. Other researchers, such as professor Arthur
Cole, defined entrepreneurship as purposeful activity to initiate,
maintain, and develop a profit-oriented business. The important part of
this definition is the requirement that individuals must create a new
business organization in order to be considered entrepreneurial.
Cole's entrepreneur was a builder of profit-minded organizations.

Still other observers, such as Shapero and Sokol, have argued that all
organizations and individuals have the potential to be entrepreneurial.
These researchers focus on activities rather than organizational make-up
in examining entrepreneurship. They contend that entrepreneurship is
characterized by an individual or group's initiative taking,
resource gathering, autonomy, and risk taking. Their definition could
theoretically include all types and sizes of organizations with a wide
variety of functions and goals.

In his book
Innovation and Entrepreneurship
, Peter F. Drucker took the ideas set forth by Schumpeter one step
further. He argued that Schumpeter's type of innovation can be
systematically undertaken by managers to revitalize business
and
nonbusiness organizations. By combining managerial practices with the
acts of innovation, Drucker argued, business can create a methodology of
entrepreneurship that will result in the institutionalization of
entrepreneurial values and practice. Drucker's definition of
entrepreneurship—a systematic, professional discipline available to
anyone in an organization—brings our understanding of the topic to
a new level. He demystified the topic, contending that entrepreneurship is
something that can be strategically employed by any organization at any
point in their existence, whether it be a start-up or a firm with a long
history. Drucker understood entrepreneurship as a tool to be implemented
by managers and organizational leaders as a means of growing a business.

THE ENTREPRENEURIAL PERSONALITY

Writing in his book
The Entrepreneurial Mind,
Jeffry Timmons defined entrepreneurship as "the ability to create
and build something from practically nothing." His definition
captures the spirit of the word, the sense that entrepreneurs are like
magicians, creating thriving organizations out of good ideas by virtue of
hard work, canny business dealing, and personal skills. Timmons's
words hint at the myths inherent in the common understanding of
entrepreneurship.
They bring to mind the great entrepreneurs who have become icons of
American business mythology.

Many businesspeople believe that entrepreneurs have a personality that is
different than those of "normal" people. Entrepreneurs are
seen as having "the right stuff." But defining the various
characteristics and qualities that embody entrepreneurial success can be
an elusive task, for as Lanko indicated, "today's
entrepreneurs are big and tall, and short and small. They come from every
walk of life, every race and ethnic setting, all age groups, male and
female, and from every educational background. There is no mould for the
entrepreneur. Entrepreneurs make their own mold."

But while it is hard to generalize about what it takes to be a successful
entrepreneur, some personality traits seem to be more important than
others. "While many authors and researchers have disagreed on the
relative significance of individual entrepreneurial traits, all agree on
one quality that is essential to all entrepreneurs, regardless of
definition," wrote Lanko. "That quality is
'commitment'; it is self-motivation that distinguishes
successful entrepreneurs from those that fail. It is the common thread in
the lives and biographies of those that have succeeded in new enterprises.
It is the one quality which entrepreneurs themselves admit is critical to
the success of their initiatives."

Other traits commonly cited as important components of entrepreneurial
success include business knowledge (business planning, marketing
strategies, asset management, etc.), self-confidence, technical and other
skills, communication abilities, and courage. But there are other, less
obvious, personality characteristics that an entrepreneur should develop
as a means of further ensuring their success. In his book
Entrepreneurship: Texts, Cases, Notes
, Robert C. Ronstadt indicated some additional traits that help
entrepreneurs build thriving organizations, including creativity and the
ability to tolerate ambiguous situations.

Creative solutions to difficult problems may make or break the young and
growing business; the ability of an entrepreneur to find unique solutions
could be the key to his or her success. One of the most vexing situations
entrepreneurs face is the allocation of scarce resources. For instance,
owners of new ventures need to be able to decide how to best use a small
advertising budget or how best to use their limited computer resources.
Furthermore, they must be creative in their ability to find capital, team
members, or markets. Entrepreneurial success is often directly predicated
on the business owner's ability to make do with the limited
resources available to him or her.

In addition to being creative, an entrepreneur must be able to tolerate
the ambiguity and uncertainty that characterize the first years of a new
organization. In nearly all cases, business or market conditions are bound
to change during the first few years of a new business's life,
causing uncertainty for the venture and for the entrepreneur. Being
creative enables entrepreneurs to more successfully manage businesses in
new and ambiguous situations, but without the ability to handle the
pressure that uncertainty brings upon an organization, the entrepreneur
may lose sight of his or her purpose.

Finally, environmental factors often play a significant part in
influencing would-be entrepreneurs.

Often, personal or work history has led individuals to be more open to
taking the risks involved with undertaking a new venture. For instance,
individuals who know successful entrepreneurs may be stimulated to try
their hand at running their own business. The successful entrepreneurs act
as role models for those thinking about undertaking a new venture,
providing proof that entrepreneurship does not always end in bankruptcy.

In addition, work experience can provide entrepreneurs with invaluable
experience and knowledge from which to draw. "First and foremost,
entrepreneurs should have experience in the same industry or a similar
one," insisted the
Portable MBA in Entrepreneurship.
"Starting a business is a very demanding undertaking indeed. It is
no time for on-the-job training. If would-be entrepreneurs do not have the
right experience, they should either go out and get it before starting
their new venture or find partners who have it."

THE PROCESS OF ENTREPRENEURSHIP

The myths that have grown up around the great entrepreneurs in America
have focused more on the personality of the individual than on the work
that he or she did to create a prosperous organization. What sticks in our
memories are the qualities of a great entrepreneur, those personality
traits that "make" a great businessperson. Successful
entrepreneurs, however, work hard to build their organizations, starting
from little and undertaking a process that results in a thriving business.
Even the best ideas become profitable only because the entrepreneur went
through the steps necessary to build a company from the ground up.
Successful new ventures do not appear magically out of the swirl of the
marketplace; they are planned, created, and managed.

It is important to understand some of the stages a businessperson must go
through in order to create a successful entrepreneurial venture. All
entrepreneurs go through three very general stages in the process of
creating their ventures: a concept formation stage where ideas are
generated, the innovation and opportinity
are identified, and the business begins to take shape; a resource
gathering stage where necessary resources are brought together to launch
the new business; and a stage where the organization is actually created.

CONCEPTFORMATION
Before any business opens its doors, it must make crucial decisions about
the way the business will be run. This first step in the entrepreneurial
process is where the entrepreneur determines what kind of potential market
exists for the business and forms a rough idea of how to penetrate the
existing market. During the concept formation stage, the entrepreneur must
answer hard questions about the potential business as well as his or her
own motivations for starting his or her own business. The answers to these
questions will provide the framework for future planning, growth, and
innovation.

There is a great deal that is unknown to the entrepreneur before he or she
starts out. The viability of the venture depends on the
individual's ability to lessen that which is unknown and maximize
that which is known. The central question an entrepreneur should ask him
or herself during the idea generation stage is whether there is actually
an opportunity for a successful venture. That is, will starting a new
business enable the entrepreneur to accomplish things or meet personal and
professional goals that he or she might not otherwise meet? Some
entrepreneurs want to make a certain return on their efforts and
investment or are looking to run a business that will afford them a
certain lifestyle. Others are looking to capture a certain percentage of
the market and thus increase their wealth. Still others go into business
for themselves because it would afford them the independence and freedom
that working for someone else would not. Before taking the plunge,
prospective entrepreneurs should investigate the extent to which their
envisioned business will give them an opportunity to meet their goals.

A new business can be opened by anyone with the capital and time to do it.
Nevertheless, businesses that will be successful for years to come must
maintain a certain level of financial soundness. Among the first questions
an entrepreneur should ask are those that explore the potential
profitability of the venture. The entrepreneur should be able to estimate
sales and selling expenses as well as other costs of doing business. In
order to develop a sense of the economic feasibility of a venture, the
entrepreneur should investigate the size and other characteristics of the
potential market for the product or service, including competitive
pressures and capital start-up requirements. Quantitative analysis of the
opportunity is a vital part of the conceptualization of the business. The
results of "running the numbers" and creating a set of
figures with which the future can be planned will enable the entrepreneur
to determine whether the potential business will be profitable.
"There is no more luck in becoming successful at entrepreneurship
than in becoming successful at anything else," wrote William D.
Bygraves in
The Portable MBA in Entrepreneurship.
"In entrepreneurship, it is a question of recognizing a good
opportunity when you see one and having the skills to convert that
opportunity into a thriving business. To do that, you must be prepared. So
in entrepreneurship, just like any other profession, luck is where
preparation and opportunity meet."

RESOURCE GATHERING
The first stage of the entrepreneurship process should give the
individual enough information to decide whether or not the business has
the capacity to meet the individual's personal and professional
goals. Once the decision has been made, the entrepreneur may: 1) continue
to work in his or her present employment capacity; 2) begin looking for a
new entrepreneurial opportunity that is a better fit; or 3) beings the
second step in the entrepreneurial process, that of gathering the
necessary resources.

Without a sufficient supply of resources the opportunity might never be
turned into a business that makes money for the entrepreneur. In the
resource gathering stage the entrepreneur begins to assemble the tools
that he or she will need to make the business idea a successful one. In
general, a person has to gather three types of primary resources: capital,
human/managerial, and time. Capital can be financial (in the form of cash,
stock ownership, or loans), intellectual (patents, trademarks, brand names
and copyrights), and technical (innovations in design or production that
competitors can not or will not duplicate). Human resources refers to the
individuals who will help the entrepreneur take advantage of the
opportunity, either as employees of the new organization or as paid and
unpaid counselors. In order to create a viable organization, an
entrepreneur has to be ready and able to manage the resources at his or
her disposal, bringing them together in advantageous, efficient ways that
meet the needs of the fledgling organization.

An often-overlooked consideration in the resource gathering stage is time.
Many entrepreneurial ventures that manage to succeed do so in part because
they were launched at an opportune time, and because their founders were
able to carve out an adequate amount of time—a most valuable
resource, after all—to attend to the myriad start-up needs of the
business. For instance, a business based on a patented technological
innovation has a certain amount of time to operate before the patent
expires and competitors can duplicate the innovation. When the patent
expires, the competitive advantage held by the business is diminished or
gone. Other businesses may be based on selling to an emerging market. The
entrepreneur who runs the business has a certain amount of time before
potential competitors notice that the business is (or will be)
profitable. In that time frame—the window of opportunity—the
entrepreneur who found the opportunity must manage resources so that the
business is established and protected from the threat of competition. In
such instances, however, the would-be entrepreneur also needs to avoid the
common mistake of rushing in to take advantage of the opportunity without
adequately addressing all of the various elements that produce a
successful start-up.

ORGANIZATION CREATION AND DEVELOPMENT

This stage of the entrepreneurial process is the actual establishment and
opening of the business. During this stage, the entrepreneur goes from
being just a visionary to a visionary with a business to run. One way to
examine the changing managerial activities of the entrepreneur is to look
at the different roles filled by the entrepreneur as the business
develops. As the founder of the organization, the entrepreneur sets the
philosophy of the organization, establishes the strategic focus, and
educates new employees. In this role, the entrepreneur lays the groundwork
for the emerging corporate culture. In addition, most entrepreneurs serve
as the primary promoters for their new start-ups. They must act as the new
venture's chief spokesperson in contacts with financial backers,
prospective clients, employees, suppliers, and others. In addition, as
founders (or founding team members) of organizations, entrepreneurs are
often called upon to provide counsel or advice to community members or
employees. The roles that an entrepreneur must fill demand flexibility and
creativity. In order to successfully manage a new venture, an entrepreneur
must be comfortable in all the roles.

ENTREPRENEURSHIP AND LEADERSHIP

Entrepreneurs must also be able to balance their managerial duties with
leadership activities. In other words, they have to be able to handle both
the day-today operations of the business as well as decision making
obligations that determine the organization's long-term direction,
philosophy, and future. It is a precarious relationship, but entrepreneurs
must be both managers and visionaries in order to build their
organizations. Indeed, researchers contend that many otherwise talented
entrepreneurs have failed because they were unable to strike an
appropriate balance between details of management and the larger mission
that guides the new venture. Many entrepreneurs eventually reach a point
where they realize that these twin obligations can not be fully met alone.
It is at this point that staffing decisions can become a critical
component of long-term business success. In general, entrepreneurs should
search for ways to delegate some of their management tasks rather than
their leadership tasks. After all, in most cases the new business has long
been far more dependent on its founder's leadership and vision than
on his or her ability to monitor product quality or select new computers.

The mission of the new venture can only be fulfilled if the entrepreneur
remains entrepreneurial throughout the life of the organization. That is,
innovation has to be a primary strategy of the venture. Drucker pointed
out that the venture must be receptive to innovation and open to the
possibilities inherent in change. Change must be seen as a positive for a
business to remain entrepreneurial. Therefore, management of an
entrepreneurial organization requires policies that encourage innovation
and rewards those who innovate. If the venture is to remain dedicated to
entrepreneurship, management has to take the lead in establishing the
patterns that will lead to a dynamic, flexible, and vital organization.